Forensic accounting involves the use of accounting and auditing skills to investigate fraud or misappropriation. This practice routinely involves a diligent analysis of financial information, which when disseminated, can in due course be applied for the purposes of legal proceedings or otherwise.
According to Merriam-Webster, the term ‘forensic’ means belonging to, used in, or suitable to courts of judicature or to public discussion and debate. Therefore, forensic accountants must prepare their analysis while applying strict attention to detail, with the implied assumption that such analysis may be subject to the scrutiny of a courtroom.
Why involve an independent forensic accounting firm?
When the occurrence of allegations surface and fraudulent behaviour is suspected within an organization, the most common initial response is one of confusion, since the culprits are often unknown, what losses have been incurred and if the alleged fraud is ongoing, leaving the organization vulnerable to assume even greater losses at a later date.
Understandably, an organization’s instinctual reaction is to involve internal resources to conduct the investigation in order to confirm or dispel these allegations. This will often include in-house professionals from the financial, legal, IT departments as well as countless others.
While it may be most practical –and seemingly cost effective–to commence the investigation internally, there are several potential challenges that an organization would not encounter should they opt to employ an external forensic accountant, including:
Key Considerations
- Do the internal employees assigned to probe into a suspected fraud possess the requisite knowledge, background and experience to conduct such investigations? For example, it would be poor judgement to assume that an IT specialist is well-equipped to forensically acquire electronic evidence that may be critical to the successful resolution of an investigation.
- Can an employee objectively gather and assess evidence when investigating a fellow colleague?
- Will crucial evidence remain intact and in its original state if the suspected fraudster is involved in the investigation? To the extent that the matter proceeds to court, will the individual(s) involved in the investigation be qualified as an expert to provide testimony?